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Consolidated Financial Statement - Meaning, Restrictions, How to Prepare? - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
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clicking the bell ican friends today we're to learn a topic which is called as the
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consolidated financial statement now
this is the most important thing for the
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listed companies because the companies
which are listed if they have any
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subsidiaries like like the Colgate which
is having CEO the subsidiary of the
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Registrar and then you need to report
the data of the subsidiary associates or
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the joint ventures and so on and so
forth they need to report all the data
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and it has been summarized into one
single statement now or is no one
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financial statement which is the
consolidated financial statement you can
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see the Colgate subsidiary of the
register on you know different type of
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four subsidiaries that which they have
and the jurisdiction in which they
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operate is given over here as you can
see the data right in front of us see
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the subsidiary of the Colgate's and and
it senses in around the glob as you can
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see so consolidated financial statement
you know is the basically the financial
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statement of the overall crew you know
which represents a sum total of the
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overall you can say sum total of its
parent and all of its subsidiary so it's
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like this are all the kids of the
company and this is the head of the
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company you can say that or the other
the parent so there basically you can
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say the mother or father so it includes
a three kind of the financial statements
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they have the first one is the the
income statement then they have the cash
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flow statement and the next is the
balance sheet right so this are the
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three sort of financial statement now
what is exactly the meaning of the
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consolidated financial statement see it
is a very important thing I mean for an
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investor to understand a parent company
who owns a major stake in another
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company the later you know the another
company that later is called you know
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the subsidiary so even if both holding
and the subsidiary have separate legal
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entities
and both record their own FS that is the
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financial statements they need to
prepare a CFS the consolidated financial
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statement to help the investor to get a
better understanding now in this
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tutorial we'll look at the meaning of
the CFS meaning and detail and we'll try
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and find out how to create CFS using the
IES and gaap so let's learn what exactly
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is a CFS he from the name itself the CFS
we can guess that you know the
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financial statement the financial
statement are talking basically about
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here is not one company if you are
looking at the financial statement of
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all the companies and which are these
subsidiaries of the parent company right
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and legally they have separate entities
so let's take a us a CFS example to
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understand this let's say there is a
company called kg Inc and it is an
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electric power supply company and it's
its stock trade on a stock exchange the
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kg Inc has acquired into let's say
KK Inc and both of this companies have
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separate legal entities now here kg Inc
company is the parent company and KK Inc
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is is is these subsidies so both of this
company will issue the financial
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statement separately but for eating the
investors in the shareholders they would
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create some CFS the consolidated
financial statement which will contain
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the financial statement of both of this
company both of them okay and this
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consolidated statement will help the
investor to understand the big
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picture of the company like for example
all the expenses that are incurred by
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the KK Inc company is separate from what
kg Inc right but in the CFS all the
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expenses of both the both the companies
they will be recorded and similarly the
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balance sheet of the CFS will be will
portray both of this companies in terms
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of the assets liabilities and stocks so
we'll see now how can we format the
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consolidated financial statements so
that the investor may understand the
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direction of the company and its
subsidiary so we look into the
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accounting part now now how exactly is
the this financial statement exactly
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work
now we'll understand from both the angle
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from the IFRS angle and from the US
GAAP angle how exactly preparing the
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consolidated financial statement over
here it's as per the IAS 27 they're
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getting some guidelines so you know
first let's talk about where it isn't
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necessary for the parent company to
prepare and present the CFS so if the
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parent company is fully or partially
owned I'm talking about the holding
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company the parent company is fully or
partially owned by these subsidiary
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company then the presentation of the CFS
is not required under stand in front and
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this fact but that is the subject to the
fact that if the owners don't question
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the parent company for not representing
the CFS now if the parent or the
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holding company stock or the debt isn't
traded in any public market for example
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like what we are talking about here is
the stock exchange let's say the stock
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exchange you can say that you know in
the in that scenario over-the-counter
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market then it's not required for the
parent company to present its
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consolidated financial statement now if
the parent company is on the brink of
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filing its financial statement with the
SEC or this is the security commission
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of issuing any type of instruments in
public market then it would not be
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required for the parent company to
present its CFS the forth lastly you
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know if any parent of this of this
parent company if any parent of this
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parent company presents its CFS
according to the mandate of the IFRS then
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in that scenario it would not be
necessary for the parent to present any
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CFS for the public issue now let's
understand some points regarding the US
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GAAP see if you are in USA or for or
follow GAAP here are few things you know
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you should consider while preparing the
CFS let's say if a company has majority
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of voting power of let's say around a
greater than 50% or more
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then the CFS can be done yes
according to the gaap if your business
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holds 20% to 50% in equity you need to
report your CFS under the equity
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method remember this thing and the
reasoning behind this is that in all the
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company behind that you know as a
company when you have 20% to 50%
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equity in an another company you
can exert your own influence on them and
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that's why they are asking to do or
follow the equity method now according
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to the gaap in the CFS the equity portion
of the retained earning of the subsidiary
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company should be removed and if the
subsidiary is not fully owned then the
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non-controlling interest or the mi
should be used now while producing these
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CFS the balance sheet of the subsidiary
company should be adjusted for any
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current fair market value or the FMV of
the assets this is very important you
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know while preparing in the consolidated
financial statement if the revenue of
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the parent company is the expense
writing for you of the subsidiary then
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in that scenario it should be completely
removed now I'm going to show you some
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of the examples on how CFS are prepaid I
know this is the Colgets consolidated
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statement of income but you can see all
the data of all the subsidiary has to be
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combined in the similar fashion it is
given over here for Colgate balance
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sheet as you can see over here that was
the statement of income statement then
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there is a balance sheet over here then
I'm going to show you the cash flow
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statement of Colgate now you can see how
this is in prepared everything has been
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restructured over here and you know
sorry everything has been combined over
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here actually so in an all you can say
that the consolidated financial
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statements depicts what a group of
company is heading to one so it gives a
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very clear picture of the not only the
existing and the potential investor
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about the company and its future but the
CFS always doesn't help until
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you have the detailed approach or you
can say the detail check so you need to
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check the method nodes in the CFS to
investigate the transactions understand
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why the entry has been recorded and this
will help you understand about the
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company very accurately so that's it for
this particular topic if you have
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learned and enjoyed watching this video
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